Saturday, 23 July 2011

Definition,History And Countries Were Islamic Banking Exists

Some times I wonders about the ongoing debate in Nigeria,conserning the Islamic Banking.
So I decided to go insearch for the main aim/purpose of this Islamic Banking.
I gone endowed on the Net,Papers,Histories on the search of this banking system,this is the result I got after a long search...
Islamic banking (or participant
banking) is banking or banking
activity that is consistent with the
principles of Islamic law (Sharia)
and its practical application
through the development of
Islamic economics. Sharia
prohibits the payment or
acceptance of specific interest or
fees (known as Riba or usury) for
loans of money. Investing in
businesses that provide goods or
services considered contrary to
Islamic principles is also Haraam
(forbidden). While these
principles were used as the basis
for a flourishing economy in
earlier times, it is only in the late
20th century that a number of
Islamic banks were formed to
apply these principles to private
or semi-private commercial
institutions within the Muslim
History of Islamic banking
An early market economy and an
early form of mercantilism were
developed between the 8th-12th
centuries, which some refer to as
"Islamic capitalism".[3] The
monetary economy of the period
was based on the widely
circulated currency the dinar, and
it tied together regions that were
previously economically
A number of economic concepts
and techniques were applied in
early Islamic banking, including
bills of exchange, partnership
(mufawada) such as limited
partnerships (mudaraba), and
forms of capital (al-mal), capital
accumulation (nama al-mal),[4]
cheques, promissory notes,[5]
trusts (see Waqf),[6]
transactional accounts, loaning,
ledgers and assignments.[7]
Organizational enterprises
independent from the state also
existed in the medieval Islamic
world, while the agency
institution was also introduced
during that time.[8][9] Many of
these early capitalist concepts
were adopted and further
advanced in medieval Europe
from the 13th century onwards.
The word "Riba" means excess,
increase or addition, which
according to Shariah
terminology, implies any excess
compensation without due
consideration (consideration
does not include time value of
money). The definition of riba in
classical Islamic jurisprudence
was "surplus value without
counterpart", or "to ensure
equivalency in real value", and
that "numerical value was
Applying interest was acceptable
under some circumstances.
Currencies that were based on
guarantees by a government to
honor the stated value (i.e. fiat
currency) or based on other
materials such as paper or base
metals were allowed to have
interest applied to them.[10]
When base metal currencies
were first introduced in the
Islamic world, the question of
"paying a debt in a higher
number of units of this fiat
money being riba" was not
relevant as the jurists only
needed to be concerned with the
real value of money (determined
by weight only) rather than the
numerical value. For example, it
was acceptable for a loan of
1000 gold dinars to be paid back
as 1050 dinars of equal
aggregate weight (i.e., the value
in terms of weight had to be
same because all makes of coins
did not carry exactly similar
Modern Islamic banking
Interest-free banking seems to
be of very recent origin. The
earliest references to the
reorganisation of banking on the
basis of profit sharing rather
than interest are found in Anwar
Qureshi (1946), Naiem Siddiqi
(1948) and Mahmud Ahmad
(1952) in the late forties,
followed by a more elaborate
exposition by Mawdudi in
1950.[citation needed] The
writings of Muhammad
Hamidullah 1944, 1955, 1957
and 1962 should be included in
this category.[citation needed]
They have all recognised the
need for commercial banks and
their perceived "necessary evil,"
have proposed a banking system
based on the concept of
Mudarabha - profit and loss
sharing.[citation needed]
In the next two decades interest-
free banking attracted more
attention, partly because of the
political interest it created in
Pakistan and partly because of
the emergence of young Muslim
economists. Works specifically
devoted to this subject began to
appear in this period. The first
such work is that of Muhammad
Uzair (1955).[citation needed]
Another set of works emerged in
the late sixties and early
seventies. Abdullah al-Araby
(1967), Nejatullah Siddiqi (1961,
1969), al-Najjar (1971) and Baqir
al-Sadr (1961, 1974) were the
contributors.[citation needed]
The early 1970s saw institutional
involvement. The Conference of
the Finance Ministers of the
Islamic Countries held in Karachi
in 1970, the Egyptian study in
1972, the First International
Conference on Islamic Economics
in Mecca in 1976, and the
International Economic
Conference in London in 1977
were the result of such
involvement. The involvement of
institutions and governments led
to the application of theory to
practice and resulted in the
establishment of the first
interest-free banks. The Islamic
Development Bank, an inter-
governmental bank established
in 1975, was born of this
The first modern experiment
with Islamic banking was
undertaken in Egypt under cover
without projecting an Islamic
image—for fear of being seen as
a manifestation of Islamic
fundamentalism that was
anathema to the political
regime.[citation needed] The
pioneering effort, led by Ahmad
Elnaggar, took the form of a
savings bank based on profit-
sharing in the Egyptian town of
Mit Ghamr in 1963. This
experiment lasted until 1967
(Ready 1981), by which time
there were nine such banks in
In 1972, the Mit Ghamr Savings
project became part of Nasr
Social Bank which, currently, is
still in business in Egypt. In 1975,
the Islamic Development Bank
was set up with the mission to
provide funding to projects in
the member countries.[13] The
first modern commercial Islamic
bank, Dubai Islamic Bank, opened
its doors in 1975. In the early
years, the products offered were
basic and strongly founded on
conventional banking products,
but in the last few years the
industry is starting to see strong
development in new products
and services.
Islamic Banking is growing at a
rate of 10-15% per year and
with signs of consistent future
growth.[14] Islamic banks have
more than 300 institutions
spread over 51 countries,
including the United States
through companies such as the
Michigan-based University Bank,
as well as an additional 250
mutual funds that comply with
Islamic principles. It is estimated
that over US$822 billion
worldwide sharia-compliant
assets are managed according to
The Economist.[15] This
represents approximately 0.5%
of total world estimated assets as
of 2005.[16] According to CIMB
Group Holdings, Islamic finance is
the fastest-growing segment of
the global financial system and
sales of Islamic bonds may rise
by 24 percent to $25 billion in
The Vatican has put forward the
idea that "the principles of
Islamic finance may represent a
possible cure for ailing
Largest Islamic banks
Shariah-compliant assets reached
about $400 billion throughout
the world in 2009, according to
Standard & Poor’s Ratings
Services, and the potential
market is $4 trillion.[19][20] Iran,
Saudi Arabia and Malaysia have
the biggest sharia-compliant
In 2009 Iranian banks accounted
for about 40 percent of total
assets of the world's top 100
Islamic banks. Bank Melli Iran,
with assets of $45.5 billion came
first, followed by Saudi Arabia's
Al Rajhi Bank, Bank Mellat with
$39.7 billion and Bank Saderat
Iran with $39.3 billion.[22][23]
Iran holds the world's largest
level of Islamic finance assets
valued at $235.3bn which is
more than double the next
country in the ranking with
$92bn. Six out of ten top Islamic
banks in the world are Iranian.
[24][25][26] In November 2010,
The Banker published its latest
authoritative list of the Top 500
Islamic Finance Institutions with
Iran topping the list. Seven out of
ten top Islamic banks in the
world are Iranian according to
the list.[27]
Islamic banking has the same
purpose as conventional
banking: to make money for the
banking institute by lending out
capital. Because Islam forbids
simply lending out money at
interest (see riba), Islamic rules
on transactions (known as Fiqh
al-Muamalat) have been created
to avoid this problem. The basic
technique to avoid the
prohibiton is the sharing of
profit and loss, via terms such as
profit sharing (Mudharabah),
safekeeping (Wadiah), joint
venture (Musharakah), cost plus
(Murabahah), and leasing (Ijar).
In an Islamic mortgage
transaction, instead of loaning
the buyer money to purchase the
item, a bank might buy the item
itself from the seller, and re-sell it
to the buyer at a profit, while
allowing the buyer to pay the
bank in installments. However,
the bank's profit cannot be made
explicit and therefore there are
no additional penalties for late
payment. In order to protect
itself against default, the bank
asks for strict collateral. The
goods or land is registered to the
name of the buyer from the start
of the transaction. This
arrangement is called
Murabahah. Another approach is
EIjara wa EIqtina, which is similar
to real estate leasing. Islamic
banks handle loans for vehicles
in a similar way (selling the
vehicle at a higher-than-market
price to the debtor and then
retaining ownership of the
vehicle until the loan is paid).
An innovative approach applied
by some banks for home loans,
called Musharaka al-Mutanaqisa,
allows for a floating rate in the
form of rental. The bank and
borrower form a partnership
entity, both providing capital at
an agreed percentage to
purchase the property. The
partnership entity then rents out
the property to the borrower
and charges rent. The bank and
the borrower will then share the
proceeds from this rent based on
the current equity share of the
partnership. At the same time,
the borrower in the partnership
entity also buys the bank's share
of the property at agreed
installments until the full equity is
transferred to the borrower and
the partnership is ended. If
default occurs, both the bank
and the borrower receive a
proportion of the proceeds from
the sale of the property based on
each party's current equity. This
method allows for floating rates
according to the current market
rate such as the BLR (base
lending rate), especially in a dual-
banking system like in Malaysia.
There are several other
approaches used in business
transactions. Islamic banks lend
their money to companies by
issuing floating rate interest
loans. The floating rate of
interest is pegged to the
company's individual rate of
return. Thus the bank's profit on
the loan is equal to a certain
percentage of the company's
profits. Once the principal
amount of the loan is repaid, the
profit-sharing arrangement is
concluded. This practice is called
Musharaka. Further, Mudaraba is
venture capital funding of an
entrepreneur who provides labor
while financing is provided by
the bank so that both profit and
risk are shared. Such
participatory arrangements
between capital and labor reflect
the Islamic view that the
borrower must not bear all the
risk/cost of a failure, resulting in
a balanced distribution of
income and not allowing the
lender to monopolize the
Islamic banking is restricted to
Islamically acceptable
transactions, which exclude
those involving alcohol, pork,
gambling, etc. The aim of this is
to engage in only ethical
investing, and moral purchasing.
Islamic Banking and Finance
Database provides more
information on the subject.
In theory, Islamic banking is an
example of full-reserve banking,
with banks achieving a 100%
reserve ratio.[28] However, in
practice, this is not the case, and
no examples of 100 per cent
reserve banking are observed.
Islamic banks have grown
recently in the Muslim world but
are a very small share of the
global banking system. Micro-
lending institutions founded by
Muslims, notably Grameen Bank,
use conventional lending
practices and are popular in
some Muslim nations, especially
Bangladesh, but some do not
consider them true Islamic
banking. However, Muhammad
Yunus, the founder of Grameen
Bank and microfinance banking,
and other supporters of
microfinance, argue that the lack
of collateral and lack of excessive
interest in micro-lending is
consistent with the Islamic
prohibition of usury (riba).[30]

Allosgabriel: The Truth About Nigeria Since 1949/The Difference ...

Allosgabriel: The Truth About Nigeria Since 1949/The Difference ...: "The above quotation is a time honoured statement that aptly describes Nigeria since 1947 till date. If it is from the hearts over-flow ..."